EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") dated as of MAY 21,
2004 is entered into, by and among Knowledge Transfer Systems, Inc. a
corporation incorporated under the laws of the state of Nevada (the "Company" or
the "Seller", as the context indicates); and Xxxxxx Xxxxxxxxx.and Xxxxxx X.
Xxxxxxxx and/or assigns, having an address at 0000 00xx Xxxxxx, Xxxxxxxx, XX
00000 and 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, X.X. 00000 ("Purchaser").
W I T N E S S E T H
WHEREAS, the Company desires to sell to the Purchaser, and the
Purchaser desires to purchase from the Company, shares of the Company's Common
Stock, Par Value $0.001 per share (the "Common Shares"); and
WHEREAS, prior to the conveyance of the Common Shares and the payment
of the purchase price therefor, the Company, wishes to, and has agreed to take
all steps necessary to affect a 500 to 1 reverse split of its Common Stock (the
"Reverse Split") with the proviso that no one shareholder would own,
beneficially, less than 100 Common Shares; and
WHEREAS, prior to the conveyance of the Common Shares and the payment
of the purchase price therefor, the Company wishes to, and has agreed to take
all steps necessary to authorize the creation (but not the issuance and
delivery) of shares of the Company's Class B Preferred Stock in the amount and
on the terms and conditions set forth in Exhibit B - "Certificate of Designation
of the Series B Convertible Preferred Stock" attached hereto (the "Preferred
Stock") to be issued to those persons identified in Schedule B-1 in the
percentage amounts set forth opposite their names; and
WHEREAS, the Company, wishes to, and has agreed to take all steps
necessary to authorize the sale to the Purchaser of that number of the Common
Shares, which number of Common Shares, in the aggregate, shall represent, when
issued after the Reverse Split, not less than 90% of the Company's then number
of Issued and Outstanding shares of its Common Stock; and
WHEREAS, the Company and the Purchaser wish to provide for an Escrow of
the Purchase Price pending the payment of debts of the Company, and its
wholly-owned subsidiary, K.T. Solutions, Inc.
N O W T H E R E F O R E ,
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree that the foregoing recitals are true and correct
and further agree as follows:
ARTICLE I
SALE AND PURCHASE OF THE SHARES; REVERSE SPLIT; ISSUANCE OF A NEW CLASS OF
PREFRRED; PAYMENT OF DEBTS; CLOSING
1.1 SALE OF THE COMMON SHARES.
Upon the execution of this Agreement, subject to the terms and
conditions herein set forth, on the basis of the representations, warranties and
agreements herein contained, Seller shall sell and convey the Common Shares to
Purchaser who shall purchase the Common Shares from Seller.
1.2 REVERSE SPLIT.
Within five business days following the execution of this Agreement,
the Company shall file all necessary papers and pay all required fees to all the
entities (such as NASDAQ, the DTC, etc) whose approval is required affect the
Reverse, and thereafter the Company shall continue to take all steps necessary
to cause the Common Shares to begin trading on a post-the Reverse Split basis on
the OTC-BB.
1.3 CREATION OF THE CLASS B PREFERRED STOCK.
(a) Within five business days following the execution of this
Agreement, the Company shall file, and pay all required fees with respect to he
filing of, the "Certificate of Designation of the Series B Convertible Preferred
STOCK" in the form set forth in Schedule B attached hereto with the Secretary of
State of Nevada, and thereafter, the Company shall continue to take all other
steps necessary to create (but not to issue and deliver) the Preferred Stock to
be issued to those persons identified in Schedule B-1-Preferred Stockholders in
the percentage amounts set forth opposite their names.
(b) The total number of shares of the Class B to be issued and
outstanding shall consist of, and be determined by, the following equation:
Number of Shares of the
Preferred Stock to be Issued = $175,000.00
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The Average Bid Price per Share of the
Common Stock as reported on the OTC-BB
during a period of time which shall begin on
the day after the day the Company's Common
Stock begins to trade on the OTC-BB on a
post-split basis and which shall end after
it has traded continuously for 60 days on
the OTC-BB (the "60 Day Trading Period"),
which Period may be extended by mutual
consent.
Therefore, by way of example, and in the interest of avoiding future
misunderstandings, if the Average Bid Price per Share of the Common during the
60 day Trading Period
were to be $1.50,
the maximum number of shares of the
Preferred which could be issued would be
116,666 shares; or
if it were to be $1.00,
the maximum number of shares of the
Preferred which could be issued would be
175,000 shares; or
if it were to be $0.50,
the maximum number of shares of the Common
which could be received upon conversion of
all the Series C Preferred would be 350,000
shares.
(c) Subject to the foregoing formula for determining the number of
shares of the Preferred to be issued, the Certificates of the Preferred shall be
issued as soon as possible after the end of the 60 Trading Period to those
entities identified in Schedule B-1 in the percentage amounts sets forth
opposite their names.
(d) The Certificates evidencing the Class B Preferred Stock shall
bear the typical Restrictive Legend.
(e) Each Holder shall have the right to convert (a "Conversion")
Preferred Shares held by such Holder into such number of fully paid and
Non-assessable shares ("Conversion Shares") of the Common Stock, as is
determined in accordance with the terms hereof . Thus,
(i) from the period of time which (y) begins on the 366th
day after a Holder received a Certificate(s) evidencing the Preferred
Stock and (z) ends on the 733rd day after the Holders received received
Certificates evidencing the Preferred Stock, said Holders (other than
Xxxxx Xxxxx) may convert not more than 50% of the Preferred Stock held
by said Holders; and
(ii) following the 734th day after the Holders received
Certificates evidencing the Preferred Stock, all Holders (including
Xxxxx Xxxxx) must effect a Conversion of all shares of Preferred Stock
held by said Holders.
(f) The Total and Maximum number of Conversion Shares (of Common
Stock) to be delivered by Corporation to all of the Holders pursuant to exercise
of all Conversions shall be determined by the following equation:
Total Number of Shares of the
Common to be Received = $175,000.00
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1/2 of the Average Bid Price per Share of
the Common for the 30 days of continuous
trading preceding the Date of the Notice of
Conversion
Therefore, by way of example, and in the interest of avoiding future
misunderstandings, if the Average Bid Price per Share of the Common for the 30
days Preceding the Date of the Notice of Conversion
were to be $1.50,
the maximum number of shares of the Common
which could be received upon conversion of
all the Series B Preferred would be 233,333
shares of the Common, as follows:
1/2 of the Average Bid Price per Share of
the Common for the 30 days Preceding the
Date of the Notice of Conversion (i.e.,
$1.50) equals $0.75
$175,000 divided by $0.75 per share equals
233,333 shares of the Common; or
if it were to be $1.00,
the maximum number of shares of the Common
which could be received upon conversion of
all the Series B Preferred would be 350,000
shares of the Common, as follows
1/2 of the Average Bid Price per Share of
the Common for the 30 days Preceding the
Date of the Notice of Conversion (i.e.,
$1.00) equals $0.50
$175,000 divided by $0.50 per share equals
350,000 shares of the Common; or
if it were to be $0.50,
the maximum number of shares of the Common
which could be received upon conversion of
all the Series B Preferred would be 700,000
shares of the Common, as follows:
1/2 of the Average Bid Price per Share of
the Common for the 30 days Preceding the
Date of the Notice of Conversion (i.e,,
$0.50) equals $0.25
$175,000 divided by $0.25 per share equals
700,000 shares of the Common
Upon Conversion, each Holder of shares of the Preferred Stock would
be entitled to receive that percentage of the total number of shares of the
Common to be issued as would be proportionate to the (y) number of shares of
Preferred that he holds bears to the (z) total number of shares of the Preferred
then Issued and Outstanding.
(g) The Certificates evidencing the Common Shares received upon
conversion of the Preferred Stock Shares shall bear the typical Restrictive
Legend.
1.5 PAYMENT OF THE COMPANY'S DEBT.
(a) Attached hereto as Schedule 1.5 (a) is a list of the names of, and
all amounts owed to, all Creditors of the Company except for Xxxxx Xxxxx and
those persons identified in Schedule B-1-Preferred Stockholders.
(b) Attached hereto as Schedule 1.5 (b) is a compilation of all amounts
owed to Xxxxx Xxxxx by the Company or KT.
(c) Attached hereto as Composite Exhbit 1.5 (c) is collection of
manually executed original documents pursuant to which the persons identified in
Schedule 1.5 (a) and 1.5 (b) (other than the Internal Revenue Service and the
State of California) release the Company from their claims.
(d) Attached as Exhibit Exhibit 1.5 (d) is the form of document which,
when executed by the Internal Revenue Service when it is paid the monies owed to
it by KT, will release the KT and the Company from all claims of the Internal
Revenue Service against KT.
(e) Attached as Exhibit Exhibit 1.5 (e) is the form of document which,
when executed by the State of California when it is paid the monies owed to it
by KT, will release the KT and the Company from all claims of the State of
California against KT.
(f) Attached as Exhibit Exhibit 1.5 (f) is the form of document which,
when executed by Puccini Properties, LLC when it is paid the monies owed to it
by KT, will release the KT and the Company from all claims of Puccini
Properties, LLC against KT.
1.6 DAY OF AND CONDITIONS TO CLOSING.
The Closing shall take place at 1:00 PM New York time at the Offices of
Xxxxxx X. Xxxxxxxx at 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, on
the fifth business day following the date the Company's Common Stock has begun
to trade on the OTC-BB on a post-Reverse Split basis.
At the Closing,
(a) the Company shall deliver to the Purchaser its Form 10Q for the
period next ending before the day of the Closing; and
(b) the Company shall sell the Common Stock to the Purchaser by
delivering Certificates evidencing the Common Shares, with all necessary
transfer taxes and other revenue stamps affixed and acquired at the Company's
expense, to the Escrow Agents (as defined below) registered in the name(s) of
and to those persons identified in Schedule 1.6-(b) and in the amounts set forth
opposite their names, which total number of Common Shares, in the aggregate,
shall represent, on a post-Reverse Split basis, a number of Common Shares which
shall be not less than 90% of the Company's then number of its Issued and
Outstanding shares of Common Stock; and
(c) the Purchaser shall deliver to the Escrow Agent the sum of One
Hundred and Fifty Thousand ($150,000.00) Dollars (the "Closing Proceeds") by
Wire Transfer or Cashier's Check; and
(d) the Company shall deliver to the Purchaser such instruments,
documents and certificates as are required to be delivered by the Company or its
representatives pursuant to the provisions of this Agreement.
(e) With the Closing Proceeds,
(i) Xxxxxx Xxxxxxxxx and Xxxxxx X. Xxxxxxxx (collectively, the
"Escrow Agents", either one of them an "Escrow Agent") shall deposit
the Closing Proceeds into a dedicated bank checking account (the
"Escrow Account), naming themselves disjunctively, and not jointly, as
signatories, so that two signatures are not required to sign checks;
and, thereafter
(ii) the Escrow Agents shall immediately begin to pay the sums
of money to those persons identified in Schedule 1.5-(a) in amounts not
greater than the dollar amounts set forth opposite their names; and
(iii) the Escrow Agents shall immediately begin to pay the
sums of money to those persons identified in Schedule 1.5-(d) (the
Internal Revenue Service) and Schedule 1.5-(e) (the State of
California) in amounts not greater than the dollar amounts set forth in
Schedule 1.5-(d) and Schedule 1.5-(e); and
(iv) 30 days after the Escrow Agents have received duly
executed releases from those persons identified in Schedule 1.5-(a),
Schedule 1.5-(d), Schedule 1.5-(e), and Schedule 1.5(f), together with
a duly executed General Release executed by Xxxxx Xxxxx, individually,
running to the Company and to the Escrow Agents, and a duly executed
General Release executed by him on behalf of the Company running to the
Escrow Agents, the Escrow Agents
(A) shall pay to Xxxxx Xxxxx all sums remaining in
the Escrow Account; and the Escrow Agents
(B) shall deliver the Common Shares to those persons
identified in Schedule 1.6-(b) and in the amounts set forth
opposite their names; and
ARTICLE II
RESIGNATION OF THE DIRECTORS AND OFFICERS
2.1 Resignations.
Prior to the Closing, the Company will cause each person who is a
director or officer of the Company, to submit his or her written resignation as
director or officer of the Company which will be effective immediately, and the
Company will take all steps required to appoint nominees of Purchaser as
directors and officers of the Company.
Article III
REPRESENTATIONS AND WARRANTIES OF THE SELLER/COMPANY
Unless specifically stated otherwise, the Seller represents and
warrants that the following are true and correct as of the date hereof and will
be true and correct through the Closing Date as if made on that date:
3.1 TRANSFER OF TITLE.
Seller shall transfer title, in and to the Common Shares to the
Purchaser free and clear of all liens, security interests, pledges,
encumbrances, charges, restrictions, demands and claims, of any kind or nature
whatsoever, whether direct or indirect or contingent.
3.2 DUE EXECUTION
This Agreement has been duly executed and delivered by the Seller.
3.3 VALID AGREEMENT
This Agreement constitutes, and upon execution and delivery thereof by
the Seller, will constitute, a valid and binding agreement of the Seller
enforceable against the Seller in accordance with its respective terms.
3.4 AUTHORIZATION.
The execution, delivery and performance by the Seller of this Agreement
and the delivery by the Seller of the Common Shares have been duly and validly
authorized and no further consent or authorization of the Seller, its Board of
Directors, or its shareholders is required.
3.5 SELLER'S TITLE TO COMMON SHARES; NO LIENS OR PREEMPTIVE
RIGHTS; VALID ISSUANCE
Seller has and at the Closing will have full and valid title and
control of the Common Shares; there will be no existing impediment or
encumbrance to the sale and transfer of such Common Shares to the Purchaser; and
on delivery to the Purchaser of the Common Shares, all of the Common Shares will
be free and clear of all taxes, liens, encumbrances, charges or assessments of
any kind and shall not be subject to preemptive rights, tag-along rights, or
similar rights of any of the stockholders of the Company; such Common Shares
will be legally and validly issued in material compliance with all applicable
U.S. federal and state securities laws, and will be fully paid and
non-assessable Common Shares of the Company's common stock; and the Common
Shares have all been issued under duly authorized resolutions of the Board of
Directors of the Company. On the Closing, Seller shall deliver to the Purchaser
certificates representing the Common Shares subject to no liens, security
interests, pledges, encumbrances, charges, restrictions, demands or claims in
any other party whatsoever.
3.6 NO GOVERNMENTAL ACTION REQUIRED.
The execution and delivery by the Seller of this Agreement does not and
will not, and the consummation of the transactions contemplated hereby will not,
require any action by or in respect of, or filing with, any governmental body,
agency or governmental official, including but not limited to the Securities and
Exchange Commission ("Commission") and the National Association of Securities
Dealers ("NASD"), except such actions or filings that have been undertaken or
made prior to the date hereof and that will be in full force and effect (or as
to which all applicable waiting periods have expired) on and as of the date
hereof or which are not required to be filed on or prior to the date of Closing.
3.7 COMPLIANCE WITH APPLICABLE LAW AND CORPORATE DOCUMENTS.
The execution and delivery by the Seller of this Agreement did not and
will not and, the sale by the Seller of the Common Shares will not contravene or
constitute a default under or violation of (i) any provision of applicable law
or regulation, (ii) the articles of incorporation or by-laws of the Company or
Seller, (iii) any agreement, judgment, injunction, order, decree or other
instrument binding upon the Seller or any its assets, or result in the creation
or imposition of any lien on any asset of the Seller. The Seller is in
compliance with and conforms to all statutes, laws, ordinances, rules,
regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties.
3.8 DUE DILIGENCE MATERIALS.
The information heretofore furnished by the Seller to the Purchaser for
purposes of or in connection with this Agreement or any transaction contemplated
hereby does not, and all such information hereafter furnished by the Seller to
the Purchaser will not (in each case taken together and on the date as of which
such information is furnished), contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they are made,
not misleading.
3.9 NOT A VOTING TRUST: NO PROXIES.
None of the Common Shares are or will be subject to any voting trust or
agreement. No person holds or has the right to receive any proxy or similar
instrument with respect to the Common Shares. Except as provided in this
Agreement, the Seller is not a party to any agreement which offers or grants to
any person the right to purchase or acquire any of the Common Shares. There is
no applicable local, state or federal law, rule, regulation, or decree which
would, as a result of the sale contemplated by this Agreement, impair, restrict
or delay any voting rights with respect to the Common Shares.
3.10 SURVIVAL OF REPRESENTATIONS.
The representations and warranties herein by the Seller will be true
and correct in all material respects on and as of the Closing with the same
force and effect as though said representations and warranties had been made on
and as of the Closing and will, except, provided herein, survive the Closing for
a period of one (1) year.
3.11 ADOPTION OF COMPANY'S REPRESENTATIONS.
The Seller adopts and remakes as its own each and every representation
made by the Company in Article 4 below.
31.12 NO SOLICITATION.
No form of general solicitation or general advertising was used by the
Seller or, to the best of its actual knowledge, any other person acting on
behalf of the Seller, in connection with the offer and sale of the Common
Shares. Neither the Seller, nor, to its knowledge, any person acting on behalf
of the Seller, has, either directly or indirectly, sold or offered for sale to
any person (other than the Purchaser) any of the Common Shares, and the Seller
represents that neither itself nor any person authorized to act on its behalf
(except that the Seller makes no representation as to the Purchaser) will sell
or offer for sale any such security to, or solicit any offers to buy any such
security from, or otherwise approach or negotiate in respect thereof with, any
person or persons so as thereby to cause the issuance or sale of any of the
Common Shares to be in violation of any of the provisions of Section 5 of the
Securities Exchange Act of 1934 or any other provision of law.
3.13 NO LIABILITIES.
There are no liabilities of the Seller of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, which
could be charged as a liability to the Company, and to the best knowledge of
Seller there is no existing condition, situation or set of circumstances which
could reasonably be expected to result in such a liability
31.4 NO LITIGATION.
The Seller is not (and has not been) a party to any suit, action,
arbitration, or legal, administrative, or other proceeding, or pending
governmental investigation. To the best knowledge of the Seller, there is no
basis for any such action or proceeding and no such action or proceeding is
threatened against the Seller or the Company and neither the Seller nor the
Company is subject to or in default with respect to any order, writ, injunction,
or decree of any federal, state, local, or foreign court, department, agency, or
instrumentality.
ARTICLE IV
ADDITIONAL REPRESENTATIONS AND WARRANTIES
OF THE COMPANY /SELLER
Unless specifically stated otherwise, the Company/Seller represents and
warrants that the following are true and correct as of the date hereof and will
be true and correct through the Closing Date as if made on that date:
4.1 DUE ORGANIZATION.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of Nevada with full power and authority to own,
lease, use, and operate its properties and to carry on its business as and where
now owned, leased, used, operated and conducted. The Company is duly qualified
to conduct business as a foreign corporation and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary.
All actions taken by the current directors and shareholders of the
Company have been valid and in accordance with the laws of the State of Nevada.
The Company has one Subsidiary, KT Solutions, Inc. a California
company, which filed for chapter 7 bankruptsy in November of 2003..
4.2 COMPANY AUTHORITY.
(a) AUTHORITY TO EXECUTE AGREEMENT. The Company has all requisite
corporate power and authority to enter into and perform this Agreement.
(b) DUE AUTHORIZATION. The execution, delivery and performance by the
Company of this Agreement has been duly and validly authorized and no further
consent or authorization of the Company, its Board of Directors or its
shareholders is required.
(c) VALID EXECUTION. This Agreement has been duly executed and
delivered by the Company.
(d) BINDING AGREEMENT. This Agreement constitutes, and upon execution
and delivery thereof by the Company, will constitute, a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms.
(e) NO VIOLATION OF CORPORATE DOCUMENTS OR AGREEMENTS. The execution
and delivery of this Agreement by the Company and the performance by the Company
of its obligations hereunder will not cause, constitute, or conflict with or
result in
(i) any breach or violation or any of the provisions of or
constitute a default under any license, indenture, mortgage, charter,
instrument, articles of incorporation, bylaw, or other agreement or
instrument to which the Company or its shareholders are a party, or by
which they may be bound, nor will any consents or authorizations of any
party other than those hereto by required,
(ii) an event that would cause the Company to be liable to any
party, or
(iii) an event that would result in the creation or imposition
or any lien, charge or encumbrance on any asset of the Company or on
the securities of the Company to be acquired by the Purchaser.
4.3 AUTHORIZED CAPITAL; NO PREEMPTIVE RIGHTS; NO LIENS;
ANTI-DILUTION.
As at May 10, 2004, the Company's authorized capital consisted of
(a) Shares of Common Stock, Par Value $0.001per share, of which
100,000,000 Common Shares are Authorized, and of which 49,843,268 Shares were
Issued and Outstanding,
(i) with each holder thereof being entitled to cast one vote
for each share held on all matters properly submitted to the
Shareholders for their vote; and
(ii) there being no pre-preemptive rights and no cumulative
voting; and
(b) Shares of Preferred Stock, consisting of
(i) the Series A Convertible Preferred, having a Par Value of
$0.001 per share, and a Stated Value of $1,000.00 per share, of which
10,000,000 Shares are Authorized, and of which -0- Shares are Issued
and Outstanding, and
(ii) the Series B Convertible Preferred, having a Par Value of
$0.001 per share, and a Stated Value of $1,000.00 per share, of which
100,000,000 Shares are Authorized, and of which -0- Shares are Issued
and Outstanding, and Outstanding,
(A) with the Board of Directors being authorized from
time to time, without shareholder action, to determine and
state the designations and the preferences, limitations,
relative rights, and voting rights, if any, of each such
series by the adoption and filing in accordance with the Laws
of the State of Nevada, before the issuance of any Shares of
such series, of a Certificate of Designations determining the
terms and numbers of Common Shares of such series, which
amendment need not be approved by the stockholders or the
holders of any class or series of Common Shares except as
provided by law; and
(c) no other class of security.
4.4 SELLER'S TITLE TO COMMON SHARES; NO LIENS OR PREEMPTIVE
RIGHTS; VALID ISSUANCE.
Seller has and at the Closing will have full and valid title and
control of the Common Shares; there will be no existing impediment or
encumbrance to the sale and transfer of such Common Shares to the Purchaser; and
on delivery to the Purchaser of the Common Shares, all of the Common Shares will
be free and clear of all taxes, liens, encumbrances, charges or assessments of
any kind and shall not be subject to preemptive rights, tag-along rights, or
similar rights of any of the stockholders of the Company; such Common Shares
will be legally and validly issued in material compliance with all applicable
U.S. federal and state securities laws, and will be fully paid and
non-assessable Common Shares of the Company's common stock; and the Common
Shares have all been issued under duly authorized resolutions of the Board of
Directors of the Company. On the Closing, Seller shall deliver to the Purchaser
certificates representing the Common Shares subject to no liens, security
interests, pledges, encumbrances, charges, restrictions, demands or claims in
any other party whatsoever.
4.5 NO GOVERNMENTAL ACTION REQUIRED.
The execution and delivery by the Company of this Agreement does not
and will not, the sale by Seller of the Common Shares does not and will not, and
the consummation of the transactions contemplated hereby will not, require any
action by or in respect of, or filing with, any governmental body, agency or
governmental official, including but not limited to, the Commission and the
NASD, except such actions or filings that have been undertaken or made prior to
the date hereof and that will be in full force and effect (or as to which all
applicable waiting periods have expired) on and as of the date hereof or which
are not required to be filed on or prior to the Closing.
4.6 COMPLIANCE WITH APPLICABLE LAW AND CORPORATE DOCUMENTS.
The execution and delivery by the Company of this Agreement does not
and will not contravene or constitute a default under or violation of (i) any
provision of applicable law or regulation, (ii) the Company's articles of
incorporation or bylaws, (iii) any agreement, judgment, injunction, order,
decree or other instrument binding upon the Company or any its assets, or result
in the creation or imposition of any lien on any asset of the Company. The
Company is in compliance with and conforms to all statutes, laws, ordinances,
rules, regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties.
4.7 SEC REPRESENTATIONS.
Through the date hereof, the Company and it Officer, Directors, and 10%
Shareholders have filed all forms, reports and documents with the Commission
required to be filed by them ("SEC Reports"). The Company has delivered and/or
made available to Purchaser true and complete copies of the required SEC
Reports. Such SEC Reports, at the time filed, complied in all material respects
with the requirements of the federal and state securities laws and the rules and
regulations of the Commission thereunder applicable to such SEC Reports. None of
the SEC Reports, including without limitation, any financial statements or
schedules included therein, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading.
4.8 FINANCIAL STATEMENTS.
(a) The Purchaser has received a copy of the audited financial
statements of the Company as of December 31, 2003 ("Audited Financial
Statements"), and the related statements of income and retained earnings for the
period then ended. The Audited Financial Statements have been prepared in
accordance with generally accepted accounting principles consistently followed
by the Company throughout the periods indicated. Such financial statements
fairly present the financial condition of the Company at the dates indicated and
its results of their operations and cash flows for the periods then ended and,
except as indicated therein, reflect all claims against, debts and liabilities
of the Company, fixed or contingent, and of whatever nature.
(b) Since December 31, 2003 (the "Balance Sheet Date"), there has been
no material adverse change in the assets or liabilities, or in the business or
condition, financial or otherwise, or in the results of operations or prospects,
of the Company, whether as a result of any legislative or regulatory change,
revocation of any license or rights to do business, fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation, act of God,
public force or otherwise and no material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in the
results of operation or prospects, of the Company except in the ordinary course
of business.
4.9 NO LITIGATION.
The Company is not a party to any suit, action, arbitration, or legal,
administrative, or other proceeding, or pending governmental investigation. The
Company is not subject to or in default with respect to any order, writ,
injunction, or decree of any federal, state, local, or foreign court,
department, agency, or instrumentality.
4.10 NO TAXES.
To the best of the Company's knowledge, it is not liable for any
income, sales, withholding, real or personal property taxes to any governmental
agencies whatsoever. All United States federal, state, county, municipality
local or foreign income tax returns and all other material tax returns
(including foreign tax returns) which are required to be filed by or on behalf
of the Company have been or will be filed as of the closing date and all
material taxes due pursuant to such returns or pursuant to any assessment
received by the Company have been or will be paid as of the closing date, except
those being disputed in good faith and for which adequate reserves have been
established. The charges, accruals and reserves on the books of the Company in
respect of taxes or other governmental charges have been established in
accordance with GAAP.
4.11 MATERIAL AGREEMENTS.
(a) The Company is not currently carrying on any business and is not a
party to any contract, agreement, lease or order which would subject it to any
performance or business obligations or restrictions in the future after the
closing of the transactions contemplated by this Agreement..
(b) The Company has no employment contracts or agreements with any of
its officers, directors, or with any consultants, employees or other such
parties.
(c) The Company has no shareholder contracts or agreements.
(d) The Company has no insurance, stock option plans or employee
benefit plans whatsoever.
(e) The Company is not in default under any contract or any other
document.
(f) The Company has no written or oral contracts with any third party
except with its transfer agent, Securities Transfer Corporation.
(g) The Company has no outstanding powers of attorney and no
obligations concerning the performance of the Seller concerning this Agreement.
4.12 PERMITS.
The Company has all material Permits ("Permits" means all licenses,
franchises, grants, authorizations, permits, easements, variances, exemptions,
consents, certificates, orders and approvals necessary to own, lease and operate
the properties, of, and to carry on the business of the Company); (ii) all such
Permits are in full force and effect, and the Company has fulfilled and
performed all material obligations with respect to such Permits; (iii) no event
has occurred which allows, or after notice or lapse of time would allow,
revocation or termination by the issuer thereof or which results in any other
material impairment of the rights of the holder of any such Permit, and (iv) the
Company has no reason to believe that any governmental body or agency is
considering limiting, suspending or revoking any such Permit.
4.13 NO IMPROPER PAYMENTS.
Neither the Company nor, to the Company's knowledge, any employee or
agent of the Company has made any payments of funds of the Company, or received
or retained any funds, in each case in violation of any law, rule or regulation
or of a character required to be disclosed by the Company in any of the SEC
Reports.
4.14 NO JUDGMENTS.
There are no outstanding judgments or UCC financing instruments or UCC
Securities Interests filed against the Company or any of its properties.
4.15 ANY DEBT TO BE SATISFIED AT CLOSING.
The Company has no debt, loan, or obligations of any kind, to any of
its directors, officers, shareholders, or employees, which will not be satisfied
at the Closing.
4.16 MINIMAL ASSETS.
The Company does not have and will not have any assets at the time of
Closing other than cash, as disclosed in the Audited Financial Statements. The
Company does not own any real estate or any interests in real estate. The
Company does not own any patents, copyrights, or trademarks. The Company does
not license the intellectual property of others nor owe fees or royalties on the
same.
4.17 NO LIABILITIES.
To the best of its knowledge, there are no liabilities of the Company
of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, and there is no existing condition, situation or set
of circumstances which could reasonably be expected to result in such a
liability. The Company does not have any debt, liability, or obligation of any
nature, whether accrued, absolute, contingent, or otherwise, and whether due or
to become due, that is not reflected on the Company's financial statements.
4.18 OTC LISTING.
The Company is currently listed on the OTC Electronic Bulletin Board
under the trading symbol "KTSI". The Company is not in default with respect to
any listing requirements of the NASD.
4.19 COMPLIANCE WITH LAW.
To the best of its knowledge, the Company has complied with, and is not
in violation of any provision of laws or regulations of federal, state or local
government authorities and agencies. There are no pending or threatened
proceedings against the Company by any federal, state or local government, or
any department, board, agency or other body thereof.
4.20 CORPORATE DOCUMENTS EFFECTIVE.
The articles of incorporation, as amended, and the bylaws of the
Company, as provided to Purchaser are, or will at Closing be, in full force and
effect and all actions of the Board of Directors or shareholders required to
accomplish same have, or will at Closing have been, taken.
4.21 NO SHAREHOLDER APPROVAL REQUIRED.
The acquisition of the Common Shares by Purchaser from Seller does not
require the approval of the shareholders of the Company under the Nevada General
Corporate Law the Company's articles of incorporation or bylaws, or any other
requirement of law or, if shareholder approval is required it has or will, prior
to the Closing, be properly obtained in accordance with the requirements of the
Company's articles of incorporation and by-laws and the Nevada General Corporate
Law.
4.22 NO DISSENTERS' RIGHTS.
The acquisition of the Common Shares by Buyer from Seller will not will
not give rise to any dissenting shareholders' rights under the Nevada General
Corporate Law the Company's articles of incorporation or bylaws, or otherwise.
4.23 NOT SUBJECT TO VOTING TRUST; NO PROXIES.
None of the Common Shares are or will be subject to any voting trust or
agreement. No person holds or has the right to receive any proxy or similar
instrument with respect to such Common Shares. The Company is not a party to any
agreement which offers or grants to any person the right to purchase or acquire
any of the securities to be issued pursuant to this Agreement. There is no
applicable local, state or federal law, rule, regulation, or decree which would,
as a result of the transfer of the Common Shares to Purchaser, impair, restrict
or delay any voting rights with respect to the Common Shares.
4.24 PRIOR OFFERINGS.
All issuances by the Company of Common Shares of common stock in past
transactions have been legally and validly effected, and all of such Common
Shares of common stock are fully paid and non-assessable. To the date of this
Agreement, the Company has offered its Common Shares for sale only as shown on
SCHEDULE 4.24 annexed hereto. All of the offerings listed on SCHEDULE 4.24 were
conducted in strict accordance with the requirements of Regulation D, Rules 504
and 506, as applicable, in full compliance with the requirements of the
Securities Exchange Acts of 1933 and 1934, as applicable, and in full compliance
with and according to the requirements of the NRS and the Company's articles of
incorporation and bylaws. The Company did not prepare or distribute any offering
prospectus, solicitation, or other documents in connection with any prior
offering and has provided to Purchaser copies of all documents prepared and
filed in connection with any such offerings.
All investors in all prior offerings were "accredited" investors as
that term is defined in Rule 501 of Regulation D.
4.25 TRUE REPRESENTATIONS.
The information heretofore furnished by the Company to the Purchaser
for purposes of or in connection with this Agreement or any transaction
contemplated hereby does not, and all such information hereafter furnished by
the Company to the Purchaser will not (in each case taken together and on the
date as of which such information is furnished), contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements contained therein, in the light of the circumstances under which they
are made, not misleading.
4.26 SURVIVAL.
The representations and warranties herein by the Company will be true
and correct in all material respects on and as of the Closing with the same
force and effect as though said representations and warranties had been made on
and as of the Closing Time and will, except, as otherwise provided herein,
survive the Closing for a period of one (1) year.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Unless specifically stated otherwise, Purchaser represents and warrants
that the following are true and correct as of the date hereof and will be true
and correct through the Closing Date as if made on that date:
5.1 VALIDITY OF AGREEMENT.
This Agreement has been duly executed and delivered by Purchaser and
constitutes legal, valid and binding obligations of Purchaser, enforceable
against Buyer in accordance with its respective terms, except as may be limited
by applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
5.2 INVESTMENT INTENT.
Purchaser is acquiring the Common Shares for his own account for
investment and not with a view to, or for sale or other disposition in
connection with, any distribution of all or any part thereof, except (i) in an
offering covered by a registration statement filed with the Securities and
Exchange Commission under the Securities Act covering the Common Shares, or (ii)
pursuant to an applicable exemption under the Securities Act.
5.3 INVESTMENT EXPERIENCE.
Purchaser acknowledges that he is a sophisticated investor and can bear the
economic risks of his investment in the Common Shares and that the has such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of an investment in the Common Shares.
5.4 RESTRICTED SECURITIES.
Purchaser understands that the Common Shares have not been registered
pursuant to the Securities Act or any applicable state securities laws, that the
Common Shares will be characterized as "restricted securities" under federal
securities laws, and that under such laws and applicable regulations the Common
Shares cannot be sold or otherwise disposed of without registration under the
Securities Act or an exemption therefrom.
In this connection, Purchaser represents that he is familiar with Rule
144 promulgated under the Securities Act, as currently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
Stop transfer instructions may be issued to the transfer agent for securities of
the Company (or a notation may be made in the appropriate records of the
Company) in connection with the Common Shares.
5.5 LEGEND.
It is agreed and understood by Purchaser that the certificates
representing the Common Shares and the Preferred Stock shall each conspicuously
set forth on the face or back thereof a legend in substantially the following
form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
5.6 DISCLOSURE OF INFORMATION.
Purchaser Acknowledges that he has been furnished with information
regarding the Company and its business, assets, results of operations, and
financial condition to allow Purchaser to make an informed decision regarding an
investment in the Common Shares. Purchaser further represents that he has been
made aware of the Company's obligation to redeem all outstanding Common Shares
of preferred stock as of February 21, 2002 at $50.00 per share. Purchaser
additionally represents that he has had an opportunity to ask questions of and
receive answers from the Company regarding the Company and its business, assets,
results of operation, and financial condition.
ARTICLE VI
INDEMNIFICATION
6.0. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the Purchaser,
its partners, affiliates, officers, directors, employees, and duly authorized
agents, and each Person or entity, if any, who controls the Purchaser within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
together with its controlling persons, from and against any Damages, joint or
several, and any action in respect thereof to which the Purchaser, its partners,
affiliates, officers, directors, employees, and duly authorized agents, and any
such controlling person becomes subject to, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of Company contained in
this Agreement, as such Damages are incurred, unless such Damages result
primarily from the Purchaser's gross negligence, recklessness or bad faith in
performing its obligations under this Agreement.
(b) The Purchaser agrees to indemnify and hold harmless the Company,
its partners, affiliates, officers, directors, employees, and duly authorized
agents, and each Person or entity, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
together with its controlling persons from and against any Damages, joint or
several, and any action in respect thereof to which the Company, its partners,
affiliates, officers, directors, employees, and duly authorized agents, and any
such controlling person becomes subject to, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of the Purchaser
contained in this Agreement, as such Damages are incurred, unless such Damages
result primarily from the Company's gross negligence, recklessness or bad faith
in performing its obligations under this Agreement.
(c) All claims for indemnification by any Indemnified Party (as defined
below) under this Agreement shall be asserted and resolved as follows:
(i) In the event any claim or demand in respect of which any
person claiming indemnification under any provision of Section 6 (a) or
(b) (an "Indemnified Party") might seek indemnity under Section 6 (a)
or (b) is asserted against or sought to be collected from such
Indemnified Party by a person other than the Company, the Purchaser or
any affiliate of the Company (a "Third Party Claim"), the Indemnified
Party shall deliver a written notification, enclosing a copy of all
papers served, if any, and specifying the nature of and basis for such
Third Party Claim and for the Indemnified Party's claim for
indemnification that is being asserted under any provision of Section 6
(a) or (b) against any person (the "Indemnifying Party"), together with
the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such Third Party Claim (a "Claim
Notice") with reasonable promptness to the Indemnifying Party. If the
Indemnified Party fails to provide the Claim Notice with reasonable
promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify
the Indemnified Party with respect to such Third Party Claim to the
extent that the Indemnifying Party's ability to defend has been
irreparably prejudiced by such failure of the Indemnified Party. The
Indemnifying Party shall notify the Indemnified Party as soon as
practicable within the period ending 15 calendar days following receipt
by the Indemnifying Party of either a Claim Notice or an Indemnity
Notice (as defined below) (the "Dispute Period") whether the
Indemnifying Party disputes its liability or the amount of its
liability to the Indemnified Party under Section 6 (a) or ( and whether
the Indemnifying Party desires, at its sole cost and expense, to defend
the Indemnified Party against such Third Party Claim.
(ii) If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend
the Indemnified Party with respect to the Third Party Claim pursuant to
Section 6, then the Indemnifying Party shall have the right to defend,
with counsel reasonably satisfactory to the Indemnified Party, at the
sole cost and expense of the Indemnifying Party, such Third Party Claim
by all appropriate proceedings, which proceedings shall be vigorously
and diligently prosecuted by the Indemnifying Party to a final
conclusion or will be settled at the discretion of the Indemnifying
Party (but only with the consent of the Indemnified Party in the case
of any settlement that provides for any relief other than the payment
of monetary damages or that provides for the payment of monetary
damages as to which the Indemnified Party shall not be indemnified in
full pursuant to Section 6). The Indemnifying Party shall have full
control of such defense and proceedings, including any compromise or
settlement thereof; provided, however, that the Indemnified Party may,
at the sole cost and expense of the Indemnified Party, at any time
prior to the Indemnifying Party's delivery of the notice referred to in
the first sentence of this clause (i), file any motion, answer or other
pleadings or take any other action that the Indemnified Party
reasonably believes to be necessary or appropriate to protect its
interests; and provided further, that if requested by the Indemnifying
Party, the Indemnified Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnifying
Party in contesting any Third Party Claim that the Indemnifying Party
elects to contest. The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this clause (ii), and except as
provided in the preceding sentence, the Indemnified Party shall bear
its own costs and expenses with respect to such participation.
Notwithstanding the foregoing, the Indemnified Party may take over the
control of the defense or settlement of a Third Party Claim at any time
if it irrevocably waives its right to indemnity under Section 6 with
respect to such Third Party Claim.
(iii) If the Indemnifying Party fails to notify the
Indemnified Party within the Dispute Period that the Indemnifying Party
desires to defend the Third Party Claim pursuant to Section 6, or if
the Indemnifying Party gives such notice but fails to prosecute
vigorously and diligently or settle the Third Party Claim, or if the
Indemnifying Party fails to give any notice whatsoever within the
Dispute Period, then the Indemnified Party shall have the right to
defend, at the sole cost and expense of the Indemnifying Party, the
Third Party Claim by all appropriate proceedings, which proceedings
shall be prosecuted by the Indemnified Party in a reasonable manner and
in good faith or will be settled at the discretion of the Indemnified
Party (with the consent of the Indemnifying Party, which consent will
not be unreasonably withheld). The Indemnified Party will have full
control of such defense and proceedings, including any compromise or
settlement thereof; provided, however, that if requested by the
Indemnified Party, the Indemnifying Party will, at the sole cost and
expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnified Party and its counsel in contesting any Third Party
Claim which the Indemnified Party is contesting. Notwithstanding the
foregoing provisions of this clause (iii), if the Indemnifying Party
has notified the Indemnified Party within the Dispute Period that the
Indemnifying Party disputes its liability or the amount of its
liability hereunder to the Indemnified Party with respect to such Third
Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause (iv) below, the
Indemnifying Party will not be required to bear the costs and expenses
of the Indemnified Party's defense pursuant to this clause (iii) or of
the Indemnifying Party's participation therein at the Indemnified
Party's request, and the Indemnified Party shall reimburse the
Indemnifying Party in full for all reasonable costs and expenses
incurred by the Indemnifying Party in connection with such litigation.
The Indemnifying Party may participate in, but not control, any defense
or settlement controlled by the Indemnified Party pursuant to this
clause (iii), and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation.
(iv) If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability or the amount of its liability
to the Indemnified Party with respect to the Third Party Claim under
Section 6 or fails to notify the Indemnified Party within the Dispute
Period whether the Indemnifying Party disputes its liability or the
amount of its liability to the Indemnified Party with respect to such
Third Party Claim, the Damages in the amount specified in the Claim
Notice shall be conclusively deemed a liability of the Indemnifying
Party under Section 6, and the Indemnifying Party shall pay the amount
of such Damages to the Indemnified Party on demand. If the Indemnifying
Party has timely disputed its liability or the amount of its liability
with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such
dispute, and if not resolved through negotiations within the period of
thirty (30) calendar days immediately following the Dispute Period,
such dispute shall be resolved by arbitration in accordance with
Section 9.3.
(d) In the event any Indemnified Party should have a claim under
Section 6 against the Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver a written notification of a claim for
indemnity under Section 6 specifying the nature of and basis for such claim,
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such claim (an "Indemnity Notice") with
reasonable promptness to the Indemnifying Party. The failure by any Indemnified
Party to give the Indemnity Notice shall not impair such party's rights
hereunder except to the extent that the Indemnifying Party demonstrates that it
has been irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the Damages in the
amount specified in the Indemnity Notice will be conclusively deemed a liability
of the Indemnifying Party under Section 6, and the Indemnifying Party shall pay
the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute, and
if not resolved through negotiations within the period of thirty (30) calendar
days immediately following the Dispute Period, such dispute may be resolved by
arbitration in accordance with Section 9.3.
(e) As used herein, "Damages" means any loss, claim, demand, damage,
award, liabilities, suits, penalties, forfeitures, cost or expense, including,
without limitation, reasonable consultant and other professional fees and
disbursements of every kind, nature and description, but not attorney's fees
incurred in arbitration.
ARTICLE VII
COVENANTS
From the date of this Agreement to Closing, the Seller and the Company
covenant as follows.
7.1 Seller will to the best of its ability preserve intact the current
status of the Company and the trading capacity of the Company as a NASD Bulletin
Board company.
7.2 The Seller will furnish Purchaser with whatever corporate records
and documents are available, such as Articles of Incorporation and Bylaws.
7.3 The Company will not enter into any contract, written or oral, or
business transaction, merger or business combination, or incur any debts, loan,
or obligations without the express written consent of Purchaser or enter into
any agreements with its officers, directors, or shareholders.
7.4 The Company will not amend or change its Articles of Incorporation
or Bylaws, or issue any further Common Shares in the common stock of the Company
(except as required under its conversion obligation to the preferred
shareholders) without the express written consent of Purchaser.
7.5 The Company will not issue any stock options, warrants or other
rights or interest in the Common Shares or to its Common Shares of common stock.
7.6 The Seller will not encumber or mortgage any right or interest in
the Common Shares, and will not transfer any rights to the Common Shares to any
third party whatsoever.
7.7 The Company will not declare any dividend in cash or stock, or any
other benefit to its shareholders.
7.8 The Company will not institute any bonus, benefit, profit sharing,
stock option, pension retirement plan or similar arrangement.
7.9 The Seller will obtain and submit to the Purchaser resignation of
current officers and directors.
7.10 The Company will arrange for the Company's current bank account to
be closed and the delivery of all bank account statements and records pertaining
to this account.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 WAIVER.
Any term, provision, covenant, representation, warranty or condition
of this Agreement may be waived, but only by a written instrument signed by the
party entitled to the benefits thereof. The failure or delay of any party at any
time or times to require performance of any provision hereof or to exercise its
rights with respect to any provision hereof shall in no manner operate as a
waiver of or affect such party's right at a later time to enforce the same. No
waiver by any party of any condition, or of the breach of any term, provision,
covenant, representation or warranty contained in this Agreement, in any one or
more instances, shall be deemed to be or construed as a further or continuing
waiver of any such condition or breach or waiver of any other condition of the
breach of any other term, provision, covenant, representation or warranty. No
modification or amendment of this Agreement shall be valid and binding unless it
be in writing and signed by all parties hereto.
8.2 TERMINATION BY PURCHASER.
Notwithstanding anything to the contrary herein, Purchaser shall have
the right, in its sole and absolute discretion, at any time prior to its payment
of the Purchase Price, to terminate this Agreement, in which event, this
Agreement shall be terminated and no party shall have any further obligation to
any other party.
ARTICLE IX
MISCELLANEOUS
9.1 ENTIRE AGREEMENT
This Agreement sets forth the entire agreement and understanding of the
parties hereto with respect to the transactions contemplated hereby, and
supersedes all prior agreements, arrangements and understanding related to the
subject matter hereof. No understanding, promise, inducement, statement of
intention, representation, warranty, covenant or condition, written or oral,
express or implied, whether by statute or otherwise, has been made by any party
hereto which is not embodied in this Agreement or the written statement,
certificates, or other documents delivered pursuant hereto or in connection with
the transactions contemplated hereby, and no party hereto shall be bound by or
liable for any alleged understanding, promise, inducement, statement,
representation, warranty, covenant or condition not set forth.
SECTION 9.2 NOTICE.
(a) Any notice, request, instruction or other document required by the
terms of this Agreement to be given to any other Party hereto shall be in
writing and shall be given either
(i) by telephonic facsimile, in which case notice shall be
presumptively deemed to have been given at the date and time displayed
on the sender's transmission confirmation receipt showing the
successful receipt thereof by the recipient;
(ii) by hand delivery or Federal Express or other method in
which the date of delivery is recorded by the delivery service, in
which case notice shall be presumptively deemed to have been given at
the time that records of the delivery service indicate the writing was
delivered to the addressee;
(iii) by prepaid telegram, in which case notice shall be
presumptively deemed to have been given at the time that the records of
the telegraphic agency indicate that the telegram was telephoned or
delivered to the recipient or addressee, as the case may be; or
(iv) by U.S. mail to be sent by registered or certified mail,
postage prepaid, with return receipt requested, in which case notice
shall be presumptively deemed to have been given forty-eight (48) hours
after the letter was deposited with the United States Postal Service.
(b) Notice shall be sent:
(i) If to the Company, to:
Xxxxx Xxxxx, President Knowledge Transfer
Systems, Inc 00 Xxxxxxxxx Xxxxx, Xxxxxxx,
Xxxxxxxxxx 00000
Voice Telephone: (510 482 - 4997
Facsimile Telephone: (510) 482 - 4998
(ii) If to the Purchaser, to:
Xxxxxx Shneibalgs
0000 00xx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Voice Telephone (718) 435 - 8262
Facsimile Telephone: (925) 955 - 0800
Cellular Telephone: (917) 816 - 0790
And to
Xxxxxx X. Xxxxxxxx
000 Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 9176
VOICE TELEPHONE: (___) ___ -____
FACSIMILE TELEPHONE: (___) ___ -____
(iii) or to such other address as a Party may have specified
in writing to the other Parties using the procedures specified above in
this Section.
9.3 APPLICABLE LAW; RESOLUTION OF DISPUTES; VENUE; JURISDICTION;
WAIVER OF JURY TRIAL.
(a) This Agreement and all questions relating to its validity,
interpretation, performance and enforcement (including, without limitation,
provisions concerning limitations of actions), shall be governed by and
construed in accordance with the laws of the State of New York, notwithstanding
any conflict-of-laws doctrines of such state or other jurisdiction to the
contrary, and without the aid of any canon, custom or rule of law requiring
construction against the draftsman.
(b) The Parties hereby waive trial by jury.
IN THAT CONNECTION, THE PARTIES WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY
DISPUTE IN CONNECTION WITH OR RELATING TO THIS AGREEMENT, ANY RELATED AGREEMENT
OR ANY MATTERS DESCRIBED OR CONTEMPLATED HEREIN OR THEREIN, AND AGREES TO TAKE
ANY AND ALL ACTION NECESSARY OR APPROPRIATE TO EFFECT SUCH WAIVER.
(c) The Parties hereto irrevocably agree and consent that, at the
election of the Purchaser, all disputes concerning this Agreement or any claim
or issue of any nature whatsoever (whether brought by the Parties hereto)
arising from or relating to this Agreement or to the corporate steps taken to
enter into it (including, without limitation, claims for alleged fraud, breach
of fiduciary duty, breach of contract, tort, etc.) which cannot be resolved
within reasonable time through discussions between the opposing entities, shall
be resolved solely and exclusively by means of arbitration to be conducted in
New York, New York, which arbitration will proceed in accordance with the rules
of the Arbitration then in force in New York, New York, for resolution of
commercial disputes.
(d) The Parties agree Arbitrators themselves shall have the right to
determine and to arbitrate the threshold issue of arbitrability itself, that the
decision of the Arbitrators shall be final, conclusive, and binding upon the
opposing entities, and that a judgment upon the award may be obtained and
entered in any federal or state court of competent jurisdiction.
(e) In addition, the Parties waive, to the maximum extent permitted by
law, any objection, including any objection based on FORUM NON CONVENIENS, to
the bringing of any such proceeding in such forum.
(f) Each entity or Party involved in litigation or arbitration shall be
responsible for its own costs and expenses of any litigation or arbitration
proceeding, including its own attorney's fees (for any litigation, arbitration,
and any appeals)
9.4 COUNTERPARTS.
This Agreement may be executed by the parties hereto in separate
counterparts each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 TAXES
Any income taxes required to be paid in connection with the payments
due hereunder, shall be borne by the party required to make such payments. Any
withholding taxes in the nature of a tax on income shall be deducted from
payments due, and the party required to withhold such tax shall furnish to the
party receiving such payment all documentation necessary to prove the proper
amount to withhold of such taxes and to prove payment to the tax authority of
such required withholding.
9.6 WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES; PRESERVATION
OF REMEDIES.
This Agreement may be amended, superseded, cancelled, renewed, or
extended, and the terms hereof may be waived, only by a written instrument
signed by authorized representatives of the parties or, in the case of a waiver,
by an authorized representative of the party waiving compliance. No such written
instrument shall be effective unless it expressly recites that it is intended to
amend, supercede, cancel, renew or extend this Agreement or to waive compliance
with one or more of the terms hereof, as the case may be. No delay on the part
of any party in exercising any right, power or privilege shall hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any party of
any such right, power or privilege, or any single or partial exercise of any
such right, power of privilege, preclude any further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity. The rights and remedies of any
party based upon, arising out of or otherwise in respect of any inaccuracy in or
breach of any representation, warranty, covenant or agreement contained in this
Agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject of any other representation,
warranty, covenant or agreement contained in this Agreement (or in any other
agreement between the parties) as to which there is no inaccuracy or breach.
9.7 BINDING EFFECT; NO THIRD-PARTY RIGHTS.
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns.
9.8 FURTHER ASSURANCES.
Each party shall, at the request of the other party, at any time and
from time to time following the Closing promptly execute and deliver, or cause
to be executed and delivered, to such requesting party all such further
instruments and take all such further action as may be reasonably necessary or
appropriate to carry out the provisions and intents of this Agreement and of the
instruments delivered pursuant to this Agreement.
9.9 SEVERABILITY OF PROVISIONS.
If any provision or any portion of any provision of this Agreement or
the application of any such provision or any portion thereof to any person or
circumstance, shall be held invalid or unenforceable, the remaining portion of
such provision and the remaining provisions of the Agreement, or the application
of such provision or portion of such provision is held invalid or unenforceable
to person or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and such provision or portion of
any provision as shall have been held invalid or unenforceable shall be deemed
limited or modified to the extent necessary to make it valid and enforceable, in
no event shall this Agreement be rendered void or unenforceable.
9.9 EXHIBITS AND SCHEDULES.
All exhibits annexed hereto, and all schedules referred to herein, are
hereby incorporated in and made a part of this Agreement as if set forth herein.
Any matter disclosed on any schedule referred to herein shall be deemed also to
have been disclosed on any other applicable schedule referred to herein.
9.11 CAPTIONS.
All section titles or captions contained in this Agreement or in any
schedule or exhibit annexed hereto or referred to herein, and the table of
contents to this Agreement, are for convenience only, shall not be deemed a part
of this Agreement and shall not affect the meaning or interpretation of this
Agreement. All references herein to sections shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.
9.12 EXPENSES.
Except as otherwise expressly provided in this Agreement, whether or
not the Closing occurs, each party hereto shall pay its own expenses incidental
to the preparation of this Agreement, the carrying out of the provisions hereof
and the consummation of the transactions contemplated.
9.13 THE ESCROW AGENTS.
To induce the Escrow Agents to act hereunder, it is further agreed by
the Parties that:
(a) This Section 9.13 sets forth certain the duties of the Escrow
Agents.
(b) The Company agrees to indemnify, defend and hold harmless the
Escrow Agents from and against any and all costs (including, without limitation,
legal fees and expenses), liabilities, claims and losses arising out of or in
connection with this Escrow Agreement or any action or failure to act by the
Escrow Agents under this Escrow Agreement, except as provided in this Section
9.13 (c).
(c) The Escrow Agents shall not be liable for any action or failure to
act in its capacity as Escrow Agents hereunder unless such action or failure to
act shall constitute willful misconduct on the part of the Escrow Agents, in
which case there shall be no indemnification obligations.
(d) The Escrow Agents shall be entitled to rely upon any order,
judgment,certification, demand, notice, instrument or other writing delivered to
it hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof. The Escrow Agents may act in reliance upon any instrument or
signature believed by them to be genuine and may assume, unless they has actual
knowledge to the contrary, that any person purporting to give notice or receipt
or advice or make any statement or execute any document in connection with the
provisions hereof has been duly authorized to do so.
(e) The Escrow Agents may act pursuant to the advice of counsel with
respect to any matter relating to this Escrow Agreement and shall not be liable
for any action taken or omitted in accordance with such advice, except as
provided in Section 9.13 (c) above.
(f) The Escrow Agents (and any successor Escrow Agents) may at any
time resign as such by delivering the Escrow Shares and the Closing Proceeds to
any successor Escrow Agents, jointly designated by the other parties hereto in
writing, or to any court of competent jurisdiction, whereupon the Escrow Agents
shall be discharged of and from any and all further obligations arising in
connection with this Escrow Agreement thereafter. The resignation of the Escrow
Agents will take effect on the earlier of (i) the appointment of a successor
(including a court of competent jurisdiction) or (ii) the day which is 30 days
after the date of delivery of its written notice of resignation to the other
Parties hereto. If at that time the Escrow Agents has not received a designation
of a successor Escrow Agents, the Escrow Agents' sole responsibility after that
time shall be to safekeep the Common Shares and the Closing Proceeds and not
make delivery or disposition thereof until receipt of a designation of successor
Escrow Agents or a joint written disposition instruction by the other parties
hereto or a final order of a court of competent jurisdiction.
(g) In the event of any disagreement among the parties hereto
resulting in adverse claims or demands being made in connection with the Closing
Proceeds, or in the event that the Escrow Agents otherwise determines that the
Closing Proceeds should be retained, then the Escrow Agents may retain the
Closing Proceeds until the Escrow Agents shall have received (i) a final
nonappealable order of a court of competent jurisdiction directing delivery of
the Common Shares or (ii) a written agreement executed by the other parties
hereto directing disposition of the Closing Proceeds, in which case the Escrow
Agents shall promptly deliver the Closing Proceeds in accordance with such order
or agreement. Any court order referred to in (i) above shall be accompanied by a
legal opinion by counsel for the presenting party reasonably satisfactory to the
Escrow Agents to the effect that said court order is final and nonappealable.
The Escrow Agents shall act on such court order and legal opinion without
further question.
(h) This Escrow Agreement shall be binding upon and inure solely to
the benefit of the Parties hereto an their respective successors (including
successors by way of merger) and assigns, heirs, administrators and
representatives and shall not be enforceable by or inure to the benefit of any
third party except as provided in Section 9.13 (g) with respect to a resignation
by the Escrow Agents.
(I) The provisions of this Section 9.13 may be modified only by a
writing signed by all the Parties hereto, and no waiver hereunder shall be
effective unless in a writing signed by the Party to be charged.
THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.
SIGNATURES BEGIN ON THE FOLLOWING PAGE.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as
of the date first written herein above.
THE SELLER:
KNOWLEDGE TRANSFER SYSTEMS. INC.
By:_/s/_ Xxxxxx Xxxxx ____________________________
Xxxxxx Xxxxx, President
THE PURCHASER:
XXXXXX X. XXXXXXXX
By:_/s/ _ Xxxxxx X. Xxxxxxxx ____________________________
-------------------------
Xxxxxx X. Xxxxxxxx
XXXXXX XXXXXXXXX
By:_/s/ _ Xxxxxx Xxxxxxxxx ____________________________
Xxxxxx Xxxxxxxxx
THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.
EXHIBITS AND SCHEDULES BEGIN ON THE FOLLOWING PAGE
EXHIBIT B TO STOCK PURCHASE AGREEMENT
CERTIFICATE OF DESIGNATION
OF THE
SERIES B CONVERTIBLE PREFERRED STOCK
Knowledge Transfer Systems Inc., a corporation organized and existing
under the laws of the State of Nevada(the "Corporation"), hereby certifies that
the following resolutions were duly adopted by the Board of Directors of the
Corporation.
RESOLVED, that pursuant to the authority granted to the Board of
Directors in accordance with the provisions of the Corporation's Certificate of
Incorporation, the Board of Directors hereby authorizes a class of the
Corporation's Preferred Stock, par value $.001 per share (the "Preferred
Stock"), to be issued pursuant to a stock purchase agreement dated as of April
15, 2004, between this corporation and Xxxxxx Xxxxxxxxx.and Xxxxxx X. Xxxxxxxx
and/or assigns, having an address at 0000 00xx Xxxxxx, Xxxxxxxx, XX 00000 and
000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, X.X. 00000 ("Purchaser") the ("Stock
Purchase Agreement"), which is hereby incorporated by reference, and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, privileges and restrictions thereof as follows:
1. DESIGNATION
This Class shall be designated the Series B Convertible Preferred
Stock (the "Series B Preferred Stock").The date on which a Preferred Share is
issued and sold by the Corporation is referred to herein as the "Issue Date".
The individual or entity in whose name a Preferred Share is registered on the
books of the Corporation is referred to herein as a "Holder" and together with
each other Holder, as the "Holders". The Preferred Shares issued and sold to the
Purchasers pursuant to the above referred Purchase Agreement are sometimes
referred to herein as the "Purchaser Preferred Shares."
2. DIVIDENDS.
The Series B Preferred Stock may bear dividends, payable quarterly at the rate
of ten per cent per annum or such other amount as shall be set Such dividends
shall be payable in cash or common stock, as the Board of Directors shall
determine.
PRIORITY.
In the event of (i) any liquidation, dissolution or winding up of
the affairs of the Corporation, either voluntarily or involuntarily, (ii) the
commencement of any insolvency or bankruptcy proceedings, or any receivership,
liquidation, reorganization or other similar proceeding relating to the
Corporation or its assets or (iii) any assignment for the benefit of creditors
or any marshalling of the material assets or material liabilities of the
Corporation (each, a "Liquidation Event"), the Holders shall be entitled to
receive, in preference to the payment of the liquidation preference of any other
shares of preferred stock issued by the corporation or of any other securities
of the Corporation and prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of Common Stock or any
other stock of the Corporation having rights or preferences as to a distribution
upon a Liquidation Event junior to the rights or preferences of the Series B
Preferred Stock ("Junior Securities"), in cash an amount per share of Series B
Preferred Stock equal to the Stated Value for such share, plus any amounts owed
to the Holder thereof by the Corporation and not yet paid (collectively, the
"Liquidation Preference") (which amount shall be adjusted appropriately in the
event the outstanding shares of Series A Preferred Stock shall be subdivided,
combined or consolidated, by any capital reorganization, reclassification or
otherwise into a greater or lesser number of shares of Series B Preferred
Stock). If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution to the Holders are insufficient to permit the payment
to such holders of the full amount of the Liquidation Preference, then the
assets and funds available for payment of the Liquidation Preference shall be
distributed in proportion to the ratio that the preferential amount payable on
each such share (which shall be the Liquidation Preference in the case of a
Preferred Share) bears to the aggregate preferential amount payable on all such
shares. For purposes of this Section 3, a Liquidation Event shall (at the option
of each Holder with respect to such Holder's Preferred Shares, upon written
notice delivered to the Corporation) be deemed to be occasioned by, and to
include, but not be limited to (i) the Corporation's sale of all or
substantially all of its assets coupled with a distribution of any of the
proceeds of such sale to any holders of Junior Stock, or (ii) the acquisition of
this Corporation by another entity by means of merger or consolidation resulting
in the exchange of outstanding shares of this Corporation for securities or
consideration issued, or caused to be issued, by the acquiring corporation or
its subsidiary; provided, however, that a reorganization, merger or
consolidation involving only a change in the state of incorporation of the
Corporation shall not be deemed a Liquidation Event.
4. CONVERSION.
(a) Right to Convert. The terms of a Holders right to convert are as
set forth in the Stock Purchase Agreement.
(b) Conversion Notice. In order to convert Preferred Shares, a
Holder shall send by facsimile transmission, at any time prior to 11:59 p.m.,
eastern time, on the date on which such Holder wishes to effect such Conversion
(the "Conversion Date"), (i) a notice of conversion (a "Conversion Notice"), in
substantially the form of Exhibit A hereto, to the Corporation (which shall
promptly forward such Conversion Notice to the Corporation's transfer agent for
the Common Stock (the "Transfer Agent")) stating the number of Preferred Shares
to be converted, the applicable Conversion Price (as defined below) and a
calculation of the number of shares of Common Stock issuable upon such
Conversion and (ii) a copy of the certificate or certificates representing the
Preferred Shares being converted. The Holder shall thereafter send the original
of the Conversion Notice and of such certificate or certificates to the
Corporation. The Corporation shall issue a new certificate for Preferred Shares
in the event that less than all of the Preferred Shares represented by a
certificate delivered to the Corporation in connection with a Conversion are
converted. Except as otherwise provided herein, upon delivery of a Conversion
Notice by a Holder in accordance with the terms hereof, such Holder shall, as of
the applicable Conversion Date, be deemed for all purposes to be record owner of
the Common Stock to which such Conversion Notice relates. In the case of a
dispute between the Corporation and a Holder as to the calculation of the
Conversion Price or the number of Conversion Shares issuable upon a Conversion,
the Corporation shall promptly issue to such Holder the number of Conversion
Shares that are not disputed and shall submit the disputed calculations to its
Independent accountant within one (1) Business Day of receipt of such Holder's
Conversion Notice. The Corporation shall cause such accountant to calculate the
Conversion Price as provided herein and to notify the Corporation and such
Holder of the results in writing no later than two (2) Business Days following
the day on which it received the disputed calculations. Such accountant's
calculation shall be deemed conclusive absent manifest error. The fees of any
such accountant shall be borne by the party whose calculations were most at
variance with those of such accountant.
(c) Number of Conversion Shares; Conversion Price. The number of
Conversion Shares to be delivered by the Corporation pursuant to a Conversion
shall be as set forth in the Stock Purchase Agreement.
(d) Delivery of Common Stock upon Conversion. Upon receipt of a
Conversion Notice from a Holder pursuant to paragraph 4(b) above, the
Corporation shall instruct the Transfer Agent to deliver to such Holder, no
later than the close of business on the later to occur of (i) the third (3rd)
Business Day following the Conversion Date set forth in such Conversion Notice
and (ii) the Business Day following the day on which such Holder delivers to the
Corporation the certificates representing the Preferred Shares being converted
(the "Delivery Date"), the number of Conversion Shares as shall be determined as
provided in the Stock Purchase Agreement. The Corporation shall instruct the
Transfer Agent to effect delivery of Conversion Shares to a Holder by, as long
as the Transfer Agent participates in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program ("FAST"), crediting the account of such
Holder or its nominee at DTC with the Number of Conversion Shares required to be
delivered, no later than the close of business on such Delivery Date. In the
event that transfer Agent is not a participant in FAST or if a Holder so
specifies in a Conversion Notice or otherwise in writing, the Corporation shall
instruct the Transfer Agent to effect delivery of Conversion Shares by
delivering to the Holder or its nominee physical certificates representing such
Conversion Shares, no later than the close of business on such Delivery Date. If
any Conversion would create a fractional Conversion Share, such fractional
Conversion Share shall be disregarded and the number of Conversion Shares
issuable upon such Conversion, in the aggregate, shall be the next higher number
of Conversion Shares. Conversion Shares delivered to the Holder shall not
contain any restrictive legend as long as (A) the sale or transfer of such
Conversion Shares is covered by an effective Registration Statement, (B) such
Conversion Shares can be sold pursuant to Rule 144 ("Rule 144") under the
Securities Act and a registered broker dealer provides to the Corporation a
customary broker's Rule 144 letter, or (C) such Conversion Shares are eligible
for resale under Rule 144(k) or any successor rule or provision.
(e) Failure to Deliver Conversion Shares.
(i) In the event that the Corporation or the Transfer Agent fails for any
reason to deliver to a Holder certificates representing the number of Conversion
Shares specified in the applicable Conversion Notice on or before the Delivery
Date thereof (a "Conversion default"), and such failure continues for ten (10)
Business Days following the Delivery Date, the Corporation shall pay to such
Holder payments ("Conversion Default Payments") in the amount of (i) (N/365)
multiplied by (ii) the aggregate Liquidation Preference of the Preferred Shares
represented by the Conversion Shares which remain the subject of such Conversion
Default multiplied by (iii) the lower of twenty-four percent (24%) and the
maximum rate permitted by applicable law (the "Default Interest Rate"), where
"N" equals the number of days elapsed between the original Delivery Date for
such Conversion Shares and the earlier to occur of (A) the date on which all of
the certificates representing such Conversion Shares are issued and delivered to
such Holder, (B) the date on which such Preferred Shares are redeemed pursuant
to the terms hereof and (C) the date on which a Withdrawal Notice (as defined
below) is delivered to the Corporation. Amounts payable under this subparagraph
(f) shall be paid to the Holder in immediately available funds on or before the
fifth (5th) Business Day of the calendar month immediately following the
calendar month in which such amounts have accrued.
(ii) In addition to any other remedies provided herein, each Holder shall
have the right to pursue actual damages against the Corporation for the failure
by the Corporation or the Transfer Agent to issue and deliver Conversion Shares
on the applicable Delivery Date (including, without limitation, damages relating
to any purchase of shares of Common Stock by such Holder to make delivery on a
sale effected in anticipation of receiving Conversion Shares upon Conversion,
such damages to be in an amount equal to (A) the aggregate amount paid by such
Holder for the shares of Common Stock so purchased minus (B) the aggregate
Conversion Price applicable to such Conversion Shares) and such Holder shall
have the right to pursue all remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief).
5. ADJUSTMENTS TO CONVERSION PRICE.
(a) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If, prior to the Conversion of all of the Preferred Shares, (A)
the number of outstanding shares of Common Stock is increased by a stock split,
a stock dividend on the Common Stock, a reclassification of the Common Stock, or
the distribution to holders of Common Stock of rights or warrants entitling them
to subscribe for or purchase Common Stock at less than the then current market
price thereof (based upon the subscription or exercise price of such rights or
warrants at the time of the issuance thereof), the Fixed Conversion Price shall
be proportionately reduced, or (B) the number of outstanding shares of Common
Stock is decreased by a reverse stock split, combination or reclassification of
shares, the Fixed Conversion Price shall be proportionately increased. In such
event, the Corporation shall notify the Transfer Agent of such change on or
before the effective date thereof. For purposes hereof, the market price per
share of Common Stock on any date shall be the average Closing Bid Price for the
Common Stock on the five (5) consecutive Trading Days occurring immediately
prior to but not including the earlier of such date and the Trading Day before
the "ex" date, if any, with respect to the issuance or distribution requiring
such computation. The term "'ex' date", when used with respect to any issuance
or distribution, means the first Trading Day on which the Common Stock trades
regular way in the market from which such average Closing Bid Price is then to
be determined without the right to receive such issuance or distribution.
(b) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
Conversion of all of the Preferred Shares, there shall be any merger,
consolidation, business combination, tender offer, exchange of shares,
recapitalization, reorganization, redemption or other similar event, as a result
of which shares of Common Stock shall be changed into the same or a different
number of shares of the same or another class or classes of stock or securities
of the Corporation or another entity (an "Exchange Transaction"), then such
Holder shall (A) upon the closing of such Exchange Transaction, have the right
to receive, with respect to any shares of Common Stock then held by such Holder,
or which such Holder is then entitled to receive pursuant to a Conversion Notice
previously delivered by such Holder, (and without regard to whether such shares
contain a restrictive legend or are freely-tradable) the same amount and type of
consideration (including without limitation, stock, securities and/or other
assets) and on the same terms as a holder of shares of Common Stock would be
entitled to receive in connection with such Exchange Transaction (the "Exchange
Consideration"), and (B) upon the Conversion of Preferred Shares occurring
subsequent to the closing of such Exchange Transaction, have the right to
receive the Exchange Consideration which such Holder would have been entitled to
receive in connection with such Exchange Transaction had such shares been
converted immediately prior to such Exchange Transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
such Holder to the end that the provisions hereof (including, without
limitation, provisions for the adjustment of the Conversion Price and of the
number of shares issuable upon a Conversion) shall thereafter be applicable as
nearly as may be practicable in relation to any securities thereafter
deliverable upon the Conversion of such Preferred Shares.
(c) Adjustment Pursuant to Other Agreements. In addition to and
without limiting in any way the adjustments provided in this Section 5, the
Conversion Price shall be adjusted as may be required by the provisions of the
Registration Rights Agreement and/or by the provisions of the Stock Purchase
Agreement.
(d) No Fractional Shares. If any adjustment under this Section would
create a fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and the number
of shares of Common Stock issuable upon Conversion shall be the next higher
number of shares or, at the option of the Corporation, shall be paid in cash in
an amount calculated by multiplying the amount of the fractional share times the
Average Bid Price used to calculate the Conversion Price for such Conversion.
6. MISCELLANEOUS.
(a) Transfer of Preferred Shares. A Holder may sell or transfer all
or any portion of the Preferred Shares to any person or entity as long as such
sale or transfer is the subject of an effective registration statement under the
Securities Act or is exempt from registration thereunder and otherwise is made
in accordance with the terms of the Securities Purchase Agreement. From and
after the date of such sale or transfer, the transferee thereof shall be deemed
to be a Holder. Upon any such sale or transfer, the Corporation shall, promptly
following the return of the certificate or certificates representing the
Preferred Shares that are the subject of such sale or transfer, issue and
deliver to such transferee a new certificate in the name of such transferee.
(b) Notices. Except as otherwise provided herein, any notice, demand
or request required or permitted to be given pursuant to the terms hereof, the
form or delivery of which notice, demand or request is not otherwise specified
herein, shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission on or before 5:00 p.m.,
eastern time, on a Business Day or, if such day is not a Business Day, on the
next succeeding Business Day, (ii) on the next Business Day after timely
delivery to an overnight courier and (iii) on the third Business Day after
deposit in the U.S. Mail (certified or registered mail, return receipt
requested, postage prepaid), addressed to the parties as follows:
If to the Corporation:
C/o Xxxxxx Shneibalgs
0000 00xx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Voice Telephone (718) 435 - 8262
Facsimile Telephone: (925) 955 - 0800
Cellular Telephone: (917) 816 - 0790
and if to any Holder, to such address for such Holder as shall be designated by
such Holder in writing to the Corporation.
(c) Lost or Stolen Certificate. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of a certificate
representing Preferred Shares, and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Corporation, and upon
surrender and cancellation of such certificate if mutilated, the Corporation
shall execute and deliver to the Holder a new certificate identical in all
respects to the original certificate.
(d) Voting Rights. Once converted, the Holders of Common Stock
received upon Conversion of the Preferred Shares shall have the same voting
rights with respect to the business, management or affairs of the Corporation;
provided that the Corporation shall provide each Holder of the Preferred with
prior notification of each meeting of stockholders (and copies of proxy
statements and other information sent to such stockholders).
(e) Remedies, Characterization, Other Obligations, Injunctive
Relief. The remedies provided to a Holder in this Certificate of Designation
shall be cumulative and in addition to all other remedies available to such
Holder under this Certificate of Designation at law or in equity (including
without limitation a decree of specific performance and/or other injunctive
relief), no remedy contained herein shall be deemed a waiver of compliance with
the provisions giving rise to such remedy and nothing contained herein shall
limit such Holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of this Certificate of Designation. The
Corporation agrees with each Holder that there shall be no characterization
concerning this instrument other than as specifically provided herein. Amounts
set forth or provided for herein with respect to payments, conversion and the
like (and the computation thereof) shall be the amounts to be received by the
Holder hereof and shall not, except as expressly provided herein, be subject to
any other obligation of the Corporation (or the performance thereof). The
Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Holders and that the remedy at law for any such
breach may be inadequate. The Corporation agrees, in the event of any such
breach or threatened breach, each Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
(f) Failure or Delay not Waiver. No failure or delay on the part of
a Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege..
May 21, 2004
/s/ _ Xxxxxx X. Xxxxx __
Xxxxxx X. Xxxxx
Chairman & CEO
EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby elects to convert shares of Series B Convertible
Preferred Stock (the "Preferred Stock"), represented by stock certificate No(s).
(the "Preferred Stock Certificates"), into shares of common stock ("Common
Stock") of Knowledge Transfer Systems Inc. according to the terms and conditions
of the Certificate of Designation relating to the Series A Preferred Stock (the
"Certificate of Designation"), as of the date written below. Capitalized terms
used herein And not otherwise defined shall have the respective meanings set
forth in the Certificate of Designation.
Date of Conversion:
Number of Shares of
Preferred Stock to be converted:
Applicable Conversion Price:
Number of Shares of
Common Stock to be issued:
Name of Holder:
Address:
Signature:
Name:
Title:
Holder Requests Delivery to be made: (check one)
______ By Delivery of Physical Certificates to the Above Address
______ Through Depository Trust Corporation (Account)
SCHEDULE B-1 TO STOCK PURCHASE AGREEMENT
KNOWLEDGE TRANSFER SYSTEMS, INC.
CLASS "B" PREFERRED STOCK
NAME PERCENTAGE OF TOTAL NUMBER OF SHARES
1. ALFI-XPRES, S.A. $25,000
Xxxxx 0, Xxxxxxxx 0 X 0 #000
Xxx Xxxx, Xxxxx Xxxx
0. Xxxxx Xxxxx $65,000
00 Xxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
3. Lighthouse Holding Inc., S.A. $25,000
75 Metros Sur Del Colegia
De Senoritas Casa 652
Bufete Laralopez
San Xxxx, Costa Rica
4. Xxxxx Xxxxxx $25,000
0000 Xxxxxxxxxxx Xxxxx
Xxxx Xxxx, XX 00000
5. Xxxx Xxxxxxx $35,000
000 Xxxxxxx Xxxxx
Xxxxx 000
Xxxxxxxx, XX 00000
TOTAL $175,000
SCHEDULE 1.5 (A) TO STOCK PURCHASE AGREEMENT
LIST OF THE NAMES OF, AND ALL AMOUNTS OWED TO, ALL CREDITORS OF THE
COMPANY OR ITS WHOLLY-OWNED SUBSIDIARY, K.T. SOLUTIONS, INC. ("KT"),
EXCEPT FOR THOSE PERSONS IDENTIFIED IN SCHEDULE B-1-PREFERRED
STOCKHOLDERS.
------------------------------------
KNOWLEDGE TRANSFER VENDOR PAY OFF AMOUNT
ADP $ 1,097.00
Business Wire $ 620.00
CT Corporation $ 140.00
Depository Trust Co. $ 150.00
Xxxxxx, Xxxxxxx & Xxxxxxx $ 9,500.00
NetG $ 3,361.08
Parks, Xxxxxxxx & Xxx $ 1,250.00
Xxxxxxx, Hill $ 6,247.00
Textron Financial $ 1,200.00
Standard & Poor's $ -
X. Xxx Xxxxxxxx $ 500.00
Xxxxx Xxxxx (Expense Reimbursement)
Xxxxxxx Xxxx & Co (accounting) $ 5,520.00
Xxxxxxx Hill & Co (accounting) $ 950.00
Xxxxxxx Xxxx & Co (accounting) $ 2,950.00
Xxxxxxx Hill & Co (accounting) $ 7,000.00
Xxxxxxx Xxxx & Co (accounting) $ 1,500.00
Interwest Stock Transfer $ 1,467.14
State of Nevada - filing fee $ 250.00
Xxxxxxxxx Xxxx & Xxxxxx $ 5,400.00
$ 25,037.14
SCHEDULE 1.5 (B) TO STOCK PURCHASE AGREEMENT
COMPILATION OF OTHER AMOUNTS OWED TO XXXXX XXXXX BY THE COMPANY.
Xxxxx Xxxxx - Settlement on Loan to company $ 60,000.00
COMPOSITE EXHIBIT 1.5 (C) TO STOCK PURCHASE AGREEMENT
COLLECTION OF MANUALLY EXECUTED ORIGINAL DOCUMENTS PURSUANT TO WHICH
THE PERSONS IDENTIFIED IN SCHEDULE 1.5 (A) AND 1.5 (B) (OTHER THAN THE
INTERNAL REVENUE SERVICE AND THE STATE OF CALIFORNIA) RELEASE THE COMPANY AND
KT FROM THEIR
CLAIMS.
Employee Payroll Taxes & Penalties certified check
Federal Taxes - IRS $ 35,259.49
Certified Check payable to Bay Bank of Commerce
Employee Development. Dept. (state Empl.Taxes) $ 5,637.86
EXHIBIT EXHIBIT 1.5 (D) TO STOCK PURCHASE AGREEMENT
FORM OF DOCUMENT WHICH, WHEN EXECUTED BY THE INTERNAL REVENUE SERVICE
WHEN IT IS PAID THE MONIES OWED TO IT BY THE COMPANY OR KT, WILL
RELEASE THE COMPANY AND KT FROM ALL CLAIMS OF THE INTERNAL REVENUE
SERVICE AGAINST THE COMPANY AND KT.
EXHIBIT 1.5 (E) TO STOCK PURCHASE AGREEMENT
FORM OF DOCUMENT WHICH, WHEN EXECUTED BY THE STATE OF
CALIFORNIA WHEN IT IS PAID THE MONIES OWED TO IT BY THE COMPANY OR
KT, WILL RELEASE THE COMPANY AND KT FROM ALL CLAIMS OF THE STATE OF
CALIFORNIA AGAINST THE COMPANY AND KT.
SCHEDULE 1.6-(B) TO STOCK PURCHASE AGREEMENT
PERCENTAGE
OF TOTAL
NUMBER OF
SHARES OF NUMBER OF
COMMON TO SHARES OF COMMON
NAME OF PURCHASER RECEIVE TO RECEIVE
Xxxxxx Xxxxxxxxx ________ % _____________ Shares
Xxxxxx X. Xxxxxxxx ________ % _____________ Shares
